Today, I attended a seminar run by the Canada Revenue Agency ("CRA") for people preparing SR&ED claims.
Entrepreneurs need to educate themselves about the SR&ED program. It can provide innovation tax credits that can potentially be cash refundable.
There are many ways to handle the drafting and filing of a SR&ED claim. You can do it yourself, or SR&ED consultants can be hired. The majority of consultants work on a contingency basis and will only be paid from a successful SR&ED claim. They will want to charge anywhere from 20-50% of a claim. Anything outside of 20-25% seems excessive, but circumstances and experiences may vary.
More importantly, the wording of the tests used to determine if the scientific research and experimental development qualifies for the credit reminds me of the tests used in patent law. They are not the same, however, I believe that anytime a SR&ED claim is filed, it is important to consider the potential intellectual property ("IP") issues. Perhaps your company has created something patentable, or has developed a trade secret or know how? Lastly, be careful in your interactions with independant contractors by always having a written agreement that specifically deals with any developed IP. In the final analysis, a SR&ED claim does not only have to pass the scrutiny of the auditors and CRA but is ultimately a document that must be defensible in a Federal Tax Court.
The horror story told, by the SR&ED accounting manager, was one in which there was a falling out between the contractor and contracting company. There was no signed agreement and contractor was able to document the time and money spent, while the contracting company could produce nothing. It was implied that the SR&ED credit was not available to the contracting company, additionally, it must be assumed from the facts that neither was the intellectual property!
Please take a look at the CRA site for the SR&ED Tax Incentive Program for more details. In Ontario, the Ontario Innovation Tax Credit and Ontario Research & Development Tax Credit are also available.
I would be happy to talk to you about the SR&ED process, and to provide advice on how to best move forward in a manner that is both tax and IP law compliant. We have working relationships with SR&ED consultants and accounting professionals.
Take care,
Felix
